Mid-caps stocks, like Brunello Cucinelli S.p.A. (BIT:BC) with a market capitalization of €2.1b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. BC’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into BC here.
Does BC produce enough cash relative to debt?
Over the past year, BC has reduced its debt from €111m to €95m , which also accounts for long term debt. With this reduction in debt, the current cash and short-term investment levels stands at €51m for investing into the business. Moreover, BC has generated cash from operations of €80m during the same period of time, leading to an operating cash to total debt ratio of 84%, signalling that BC’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In BC’s case, it is able to generate 0.84x cash from its debt capital.
Can BC pay its short-term liabilities?
With current liabilities at €163m, it seems that the business has been able to meet these obligations given the level of current assets of €292m, with a current ratio of 1.8x. For Luxury companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can BC service its debt comfortably?
With debt at 36% of equity, BC may be thought of as appropriately levered. BC is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if BC’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For BC, the ratio of 65.19x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as BC’s high interest coverage is seen as responsible and safe practice.
BC has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. In addition to this, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure BC has company-specific issues impacting its capital structure decisions. I suggest you continue to research Brunello Cucinelli to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for BC’s future growth? Take a look at our free research report of analyst consensus for BC’s outlook.
- Valuation: What is BC worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether BC is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
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